A Shenzhen property model displayed in the city. Vibrant economic prospects are pushing Hong Kong investors to mainland property. Ted Aljibe / AFP

With the recent tough anti-speculative measures taken by the Hong Kong government, the local property market has been experiencing a cold snap. However, some investors are now looking across the border as well.

The combination of a rising yuan, vibrant economic development and a low interest rate environment in Hong Kong makes the booming mainland property market look attractive to local investors.

One investor, who only identified himself as Tsang and said he has been investing in mainland property for a few years, told China Daily that it is a good way to hedge against inflation.

"With a rising yuan currency value and improving transportation networks on the mainland, property investments in these areas are attractive long term investments for local investors," Tsang said.

Shenzhen and nearby second-tier cities such as Huizhou, Foshan, Zhongshan and Dongguan have become recent favorite property investment destinations for local investors due to their geographical proximity to Hong Kong.

Tsang said that his investment focus is currently on shop premises in Shenzhen as the rental yield returns of this property segment range from 10 to 20 percent. He has allocated approximately 50 percent of his capital in these investments. He also has joint investments with other business partners in Shenzhen office buildings.

"In the past month since Hong Kong announced tough anti-property speculation measures in mid November, Shenzhen shop premise purchases by local residents handled by us have registered a 4 to 6 percent year-on-year increase," 18 Property Agency (Shenzhen) Executive Director James Choy told China Daily. "The average price was up 8 percent generally, with the average transaction amount fetching around 5 million to 10 million yuan."

Choy added that the price of Shenzhen shop premises will rise another 10 percent in 2011 despite already having seen a 20 percent rise in 2010.

"As mainland authorities are not levying restrictive policies upon the sales of office buildings or shop premises as it did on the residential flats, local investors may find it easier to invest in the office and shop premise segment in Shenzhen," Centaline Group (Southern China) Chief Executive Officer Lai Kwok Keung said.

"Another reason is that the vacancy rate of office buildings and shop premises in Shenzhen is very low because of the economic vibrancy on the mainland," Lai said, adding that the local low interest rate environment is also propelling local investors to invest in Shenzhen properties.

In the last month alone, the sales of Shenzhen shop premises by Hong Kong investors handled by Centaline Group have registered a 20 to 30 percent year-on-year increase. The average price is also up 8 percent generally.

K.W. Chau, Real Estate and Construction Department chair at the University of Hong Kong, however, cautioned that Shenzhen shop premises may not be a suitable investment for local investors with small outlays as it may entail more financial risks than they expect.

"Hong Kong property investors may not be familiar with the actual premise layout or the local area, so if they buy shop premises in areas where the actual land value appreciation potential is small, they may lose money," Chau said.

"Moreover, local investors may find it difficult to collect rentals on the mainland, and the taxation payment can also crimp their rental returns," Chau added.

China Daily

(HK Edition 12/29/2010 page3)